Detroit's 100,000 public employees will get a much better pension deal after negotiators for Detroit's two pension funds and the Retired Detroit Police and Fire Fighters Association bargained hard for days and nights over the city's proposed bankruptcy recovery plan.
Radically different settlements were approved by the boards of the $2.8 billion Detroit General Retirement System and the $3.4 billion Detroit Police & Fire Retirement System on April 16 and April 17, respectively. The RDPFFA settlement was approved on April 15.
Police and fire fund negotiators were successful in getting full pension benefits restored while bargainers for the General Retirement System managed to greatly reduce the size of proposed pension cuts. The city of Detroit agreed to establish voluntary employees' beneficiary association trusts to fund retiree health care for members of both systems.
The deal approved by trustees of the General Retirement System, on the other hand, imposes 4.5% pension cuts and completely eliminates cost-of-living adjustments.
“We got the best possible deal we could given the reality we've had to deal with. I think our negotiating team has done a tremendous job protecting as well as they could the pensions of Detroit workers,” said Tina Bassett, a spokeswoman for the General Retirement System, in an interview.
Each pension fund faced large decreases in pension benefits in the revision of the city's final plan of adjustment, which was filed April 1 by Keyvn D. Orr, Detroit's state-appointed emergency manager. Mr. Orr filed for Chapter 9 bankruptcy protection in U.S. Bankruptcy Court in Detroit on July 18.
Under the old revised bankruptcy plan, police and fire pension benefits would have been cut by 6% if employees and retirees approve the plan, or 14% if the plan were rejected.
More draconian pension cuts were proposed for the General Retirement System in the old plan — a 26% pension cut if employees and retirees approve the city's recovery plan and 34% if the plan is rejected.
Chapter 9 bankruptcy process requires the final bankruptcy recovery plan be approved by all creditors, including active and retired city employees. Balloting begins May 1.
The Detroit Police & Fire Retirement System settlement eliminates pension cuts and reduces the annual cost-of-living adjustment to 1% from 2.25%. The amount of the COLA might be increased based on good performance of the pension fund, said Bruce Babiarz, a spokesman for the retirement system, in an interview.
The agreement between the city and the Retired Detroit Police and Fire Fighters Association restores full pension benefits and retains a 1% COLA, according to a message on the RDPFFA's telephone hotline.
The city raised the assumed rate of return for both pension funds to 6.75% annually through the end of 2023 from 6.25%, according to Mr. Orr's most recent recovery plan.
The deal struck by police and fire retirement system negotiators is similar to the zero pension cut/1% COLA package of the RDPFFA, but uses a different calculation formula, Mr. Babiarz said.
“Make no mistake, while the proposal calls for no cuts to pensions, it does reduce substantially cost-of-living increases to this group that is not eligible for Social Security. Many active duty police and fire have endured 10% wage cuts in recent years and extended shifts,” said a statement from the police and fire pension fund provided by Mr. Babiarz.
The statement went on to warn that “while we are considering the major economic points, it should be clearly noted that there are some 408 pages of detail that remain to be worked on with our restructuring team and the city to arrive at a final plan of adjustment.”
Ms. Bassett said some non-economic terms remain to be hammered out by GRS negotiators, including governance and ongoing litigation filed by the pension fund against the city.
All three pension settlements are dependent on about $820 million of funding from the state of Michigan, several private foundations and the Detroit Institute of Arts.
Judge Steven W. Rhodes, who is presiding over Detroit's bankruptcy, must approve the latest iteration of Mr. Orr's final plan of adjustment.
